Many people are finding it hard to refinance their mortgage loans, as their mortgage balance is already significantly more than that of the property. If you land up in such a situation, then you can consider two government programs under the Making Home Affordable Scheme – HARP (Home Affordable Refinance Program) and HAMP (Home Affordable Modification Program).
Both these programs give you an opportunity to refinance your loan. If you are stuck with an underwater mortgage with a value of 105% to 125% of the property, then you can apply for refinancing under HARP. You will have to fulfill certain eligibility criteria in order to get benefits under HARP. Various aspects such as your credit history, the structure of the loan and the specific lender guidelines would determine if you qualify for HARP.
If you are successful in your HARP application, you can reduce the burden of your monthly installments towards the loan by $300 to $400. In the long run, it can help you in saving your property from being foreclosed.
According to HARP rules, you are not eligible if you have missed a payment on your mortgage in the past one year. Moreover, the loan should not be owned by Fannie Mae or Freddie Mac. If you have defaulted in paying your installments or if the owner of the loan is Fannie Mae or Freddie Mac or any other entity enlisted with the U.S. Treasury, then you can apply under HAMP.
The eligibility criterion for HAMP is that the applicant should be facing severe financial trouble due to which the loan faces a high risk of default in payment. The benefit provided will reduce your monthly payments for almost five years.
This program provides incentives to the owners of the loan to make the terms more favorable, but it does not refinance the loan. Lowering rates, forgoing part of the principal amount or increasing the loan tenure are some of the modifications that might be introduced by the lender. After some time, the monthly payments slowly increase until they reach a level that will be sufficient to repay the loan completely.
If you do not qualify for either of these schemes, then you have only one option left to avoid foreclosure. You should try to negotiate with the lender for restructuring the loan or for short sale of the property. You should understand the gravity of the situation and act immediately instead of waiting until you get a foreclosure notice.